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How quickly time flashes by.  It is now more than  a year since the stock market posted a trend-reversal long-term High.  It was evidenced by a bearish Candlestick formation, and has been marked all the way down during the decline by a group of quite similar bearish patterns.  The unprecedented events attending the near-collapse of the whole national and world financial system over the past several weeks, leading up to passage of bailout legislation on a scale never before imagined or seen, drove many investors to a state of enormous worry about the value of, and prospects for, their hard-earned savings.

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How unfortunate it is that such a multitude of good people have worked so hard all their working lives to invest a meaningful sum for old age, only to be faced with a serious decline in the worth of their holdings – and the prospect of much worse to come.  What is even more unfortunate is that they have no knowledge of the defensive measures which they could have undertaken beginning in October 2007, and ought to be taking now and into the foreseeable future.

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One must avoid becoming a “deer in the headlights.”  The Japanese Candlestick  patterns which have formed during the past several weeks foretell the viciousness of this pervasive bear market, and the need to take countervailing action in order to defend the value of one’s holdings.

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There is “insurance” available to accomplish that result.  It  lies in the form of Inverse Stock Index Funds and Inverse Stock Index Exchange-Traded Funds.  There is a multitude of them available on the market, promoted by respected firms.  The goal of such funds is to increase in value when the particular Index to which they are geared decreases in value.  Many of them  work on a one-to-one basis – for example, a given Exchange-Traded Fund might be so structured as to increase one dollar in value for every dollar by which the S&P 600 decreases in value.  Many of such funds are leveraged, for example on a two-for-one basis.

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More and more competent observers are coming to believe that we are in a secular bear market which is only now gearing up for a devastating recession  I am in favor of the principle that every investor should create and maintain a ”Constant Short” position, using either an Inverse Stock Mutual Fund or an Inverse Exchange-Traded Fund as the vehicle; and that he or she should be depositing funds into that “insurance plan” consistently, on a regular basis.  It is even possible, by so doing, to totally offset the possibility of loss in a portfolio.  surely, any degree of offset would be welcome.  On top of that, it is possible to make an absolute profit, as well.

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Stock and Index prices move in waves, which are clearly observable on price charts.  While a ”Constant Short” plan can be of great value in protecting the worth of one’s portfolio, skillful use of Japanese Candlestick analysis can also be very useful in the identification of countertrends to be harvested for gain in upward countertrend corrections in a secular bear market.  Various methods of technical analysis can also be a boon in spotlighting the probable termination point of a countertrend rally and in pointing to a particular opportunity to “pounce on the bounce” for enhanced profit as the market declines.

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